1. Field of the Invention
The invention relates to electronic checks. More particularly, the invention relates to methods and apparatus for processing electronic checks to minimize the number of returned electronic checks.
2. Brief Description of the Prior Art
All bank checks are encoded with information which allows for machine processing of the check. This information is printed at the bottom of the check starting in the lower left hand corner and often extending under the signature line. This line of printed information is referred to as the MICR (magnetic ink character recognition) line. Prior to writing the check, the line of information includes the bank routing number (ABA number), the checking account number, and the check number. After the check is written and presented for payment, the check is read by a human and the amount of the check is imprinted on the MICR line to the right of the other information. From that point on, the check is processed by machine.
An electronic check or “e-check” is like a check without the paper. The drawer or maker of the check provides the necessary information from the check, but not the paper. This can be accomplished in several ways. One popular way is referred to as electronic check conversion. Here, the drawer or maker of the check provides a void blank check which is scanned to obtain all of the information except for the payment amount which is then entered via a keyboard or keypad. Another method is to enter all of the information via a keyboard or keypad. The latter method is used when payment is made by telephone or via the Internet. In telephone payment methods, the check information is usually obtained via an interactive voice response unit (IVRU) which plays pre-recorded prompts and interprets DTMF (dual tone multi-frequency) signals generated by the telephone keypad.
E-checks are commonly used in situations where the payer chooses not to use a credit card (e.g. does not have a credit card) or where the payee chooses not to accept a credit card. E-checks are processed in the same manner as paper checks which have been fully encoded and machine read. The information is compared to databases to determine whether the checking account can be identified and whether the checking account has sufficient funds to pay the check. If either of these inquiries fail, the check (paper or e-check) is “returned” to the presenter (usually the payee). If the account has insufficient funds to pay the check, the return is referred to as an NSF (not sufficient funds) return. If the account can not be identified, the return is referred to as an administrative (ADM) return. A little over 1% of paper checks are returned, mainly NSF returns. E-checks have a much higher return rate (e.g. 4.7%) than paper checks and this is mainly due to ADM returns.
The high administrative return rate of e-checks is mostly due to human error on the part of the payer (check drawer). Although the MICR line information is standardized, the standardization only lends itself to optical reading and character recognition. It is not positional and the characters denoting a field are unknown to a person so the standard cannot be used when optical reading equipment is unavailable. There are also optional fields on some checks and this may confuse the payer when attempting to read the MICR line. Often a payer will enter too many or too few digits. In addition, a phenomenon known in the art as “fat fingers” causes erroneous keypad and keyboard entries (typographical errors). These errors are usually associated with the account identification information rather than the payment amount data. It is estimated that two thirds of e-check returns are administrative returns. Prior art FIGS. 19–22 illustrate how the MICR line may appear on a business check (FIG. 19) or on a personal check (FIGS. 20–22).
The high rate of e-check returns is a significant problem for businesses that rely heavily on e-check payments, such as utility companies. A typical utility company may have approximately one million customers who pay their monthly bill by e-check. With an e-check return rate of 4.7%, that means that 47,000 customer payments will be rejected every month. This causes an immediate cash-flow problem for the company but also causes a very expensive customer relations problem. Most of the 47,000 customers will need to speak to a customer service representative to correct the situation. At a conservative estimate of $10 per customer service call, this will add nearly half a million dollars to the company's monthly operating expenses.
State of the art systems for processing e-checks include TeleCheck® by TeleCheck Services, Inc., Houston, Tex., and StarCheck® by Concord EFS, Inc., Memphis, Tenn. These systems are primarily aimed toward reducing NSF returns and do not significantly reduce ADM returns. JP Morgan Chase maintains a data base system called “File-Fixer” which is purported to be able to reduce ADM returns, but thus far has been unable to reduce ADM returns at all. PhoneCharge, Inc. conducted an in house test and found that it did not reduce the admins, in fact it had a negative effect because valid checking accounts were locked making them ineligible for transaction processing.